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Capital Markets

Politics mask Brazil’s economic risks

It seems counterintuitive, but the endless cycle of political turmoil in Brazil might be insulating the country from a crisis that is warranted by its perilous fiscal situation.

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It seems that investors – especially those foreign investors that fund the country’s current account deficit – have become inured to the constant political noise coming out of Brasilia. The markets barely moved in August when Brazil’s congress was voting on a request to investigate its sitting president, Michel Temer, on corruption charges. Nor did the Bovespa show much sensitivity to June’s action in the Federal Electoral Court, which could have also unseated Temer.

Perhaps this is only natural. Brazilian politics have been in flux since impeachment proceedings began against former president Dilma Rousseff in 2015. The unending revelations coming from the Lava Jato corruption investigations have led to many senior politicians and businessmen being incarcerated. It has been a soap opera with a script more dramatic than those of the nightly novellas on Brazilian TV. 

But does the recent rise in the stock market (in August the Bovespa rose above 70,000 for the first time since 2011) reflect more than the fact that Temer is now likely to be president until next year’s elections? Might it mean that the country is on the right path? 

Drawing such a conclusion is to confuse greater political stability with economic stability.

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